Are Store Brand Credit Cards Worth the Sign-Up Bonus?
You’re just about to swipe your card when the cashier asks you a question you normally brush off: Do you want to open a store credit card and get 15 percent off your total purchase? You pause for a moment. Would it be worth it to open the card, get the reward, and close the card in a month? What will that do to your credit score? Are there better options?
Churning Credit Cards
The strategy of opening a credit card, receiving rewards, and closing the card soon after is called “churning.” Like most subjects, there’s an entire subreddit devoted to discussing how best to churn credit cards. Unlike many areas of Reddit, there’s a sizable following — about 93,000 people. Let’s look at what we can learn from them and how to earn credit card rewards.
Store Cards vs. Miles and Rewards Points
If you are still standing in line, debating on whether to open that store credit card, thank the cashier for the offer and decline. Often, the sign-up bonus will not be worth the card in the long run. You may or may not receive points for use at that specific store with every purchase, but only purchases at that specific store will net a worthy amount of points. Essentially, the store wants you to use their card in their store.
Bank-issued rewards cards that do not gain more points or miles at one specific retailer, however, may be worth it. Some of these have rewards that are paid out when the credit limit is reached within a set number of months. You can earn more points with these cards, though they will likely not give you a one-time discount on a purchase or a signup bonus (though some banks and providers do offer the latter). But, you could essentially fund an entire trip with just points gained from churning, giving you a great excuse to travel on the cheap around the country.
Credit Score Ramifications
While credit card churning can lead to great rewards, if you aren’t careful, you could do damage to your credit score. Two factors of credit score, weighted differently for FICO and VantageScore, are average age of accounts (AAoA) and credit utilization. AAoA is simply the length of time each line of credit has been open; credit utilization refers to how much of your credit limit is used (i.e., how much debt you have to pay back).
To maximize your AAoA, you will want a couple of credit cards as “anchors” that have stayed open for a number of years. This will naturally raise the average age. John Ulzheimer, president of SmartCredit.com, told the New York Times that even closed accounts have value for AAoA for 10 years, though there is some debate over whether accounts must be active in order to continue contributing toward your age of credit on reports. In either case, churning and AAoA should only cause a minor dip in your credit score compared to other factors.
Credit utilization, however, is trickier. As you are maxing out a card’s limit in order to get rewards, only to pay it off immediately, your utilization will be 100 percent. This is why you should consider churning especially before big purchases. As only 30 percent is recommended for your utilization rate, this fluctuation could cause a larger hit to your credit. However, with anchor cards in the mix, this should also not be a large concern. Plus, you’ll still get some positive impact from paying your balance off in full, even if you brought it to the upward limit.
Instead, the most important factor, according to many of the Redittors, is the hard inquiry hit. However, this only lasts on your credit report for about three months, leading churners to apply for new cards every 91 days. This ensures that in any given three month period, only one hard inquiry appears in your history. With proper management of anchor cards, and paying off debt immediately — thus avoiding incurring interest — there should only be about a 5 point decrease on your score. Many Redditors claim they see an overall increase in their credit scores, or that they stay about equal. A good rule of thumb, however, is to not start churning until your score is at least 750. If you are looking to repair your credit in order to start churning, check out our Credit Repair Guide.
As credit card expert Jason Steele pointed out to Bloomberg, what’s the point of having a superprime credit score if not to “use your great credit to apply for really high-end premium cards with excellent sign-up bonuses, and get the lowest possible rate for other loans.” With churning, you keep a great credit score and earn bonuses — but only if you are able to properly manage your credit cards and payments. This is definitely not a tactic for the novice, or for anyone whose income is not stable and predictable enough to properly manage the various lines of credit. If you’ve done your homework, understand your credit, and can pull it off, you just might be able to make multiple store credit cards work for you.
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A former newspaper journalist, Cole spends his free time reading, writing, playing video games, watching movies, and learning about every subject under the sun. He lives with his wife and daughter in Idaho. Follow Cole on Twitter: @ColeMayer42
This post was updated February 28, 2019. It was originally published August 23, 2017.